Got student loans? What small business owners need to know

Although the student loan forgiveness plan came to a halt after the Supreme Court shot it down, there is still a path toward student loan forgiveness: the SAVE Repayment Plan. This plan is harder to challenge legally because it’s an adjustment to an already existing repayment plan. It could ease the burden of small business owners across the country who are struggling to pay off their debt and run their businesses. 

You can run — and fund — a small business even if you still have student loan debt. Here’s what you need to know about student loan forgiveness and managing your debt as a small business owner.

1. Apply for the SAVE Plan

The SAVE Plan stands for Saving on a Valuable Education and is a change from the previous REPAYE income-based repayment plans on federal student loans. For anyone who qualifies, it can significantly reduce your monthly payments and lower the amount you’ll pay in interest over time. In fact, you may qualify to pay $0 on your student loans — and interest won’t accumulate. 

Plus, if you’re borrowing less than $12,000, your loans will be forgiven after 10 years of regular payments (even if those payments are $0). For larger amounts, your loans can still be forgiven, but you’ll add one year for every additional $1,000 borrowed. You can apply for the SAVE Plan here.

If you’re not sure whether the SAVE Plan is right for you, use the Loan Simulator provided by FederalStudentAid.gov to walk through your repayment options before you apply.

2. Consider other repayment plans for federal loans

If you don’t qualify for the SAVE Plan but you’re struggling to make payments each month, consider a different repayment plan. Federal loans are placed automatically on a 10-year standard plan. This plan may save you interest over time, so it’s a good idea to remain on it if you can afford it. But you may not have to stick with it if your payments are too high. 

Here are the other repayment options that you may qualify for:

Graduated repayment plan

• Who it’s for: Any federal student loan borrower.
• How it works: It increases loan payments over time, usually every two years. This plan gives borrowers time to earn a higher income that may match the payment increases.
• Length of repayment period: Must pay off loan in 10 years.

Extended repayment plan

• Who it’s for: Direct loan borrowers with more than $30,000 in loans.
• How it works: Borrowers can have fixed or graduated plans with more time to pay it back.
• Length of repayment period: Must pay off loan in 25 years, so the repayment period is longer than others.

Pay as you earn repayment plan (PAYE)

• Who it’s for: Any new borrower on or after October 1, 2007 that got a direct loan disbursement on or after October 1, 2011. Must prove you can’t afford payments. 
• How it works: You pay 10% of your discretionary income (but never more than the standard plan would charge). Each year, you must resubmit your income, even if nothing has changed.
• Length of repayment period: After 20 years of payments, your remaining undergraduate student loans are forgiven (it’s 25 years for graduate loans). 

Income-based repayment plan (IBR)

• Who it’s for: Borrowers who can prove they have high debt in relation to their income level. 
• How it works: You’ll pay either 10% or 15% of your discretionary income, depending on your loan start date (but never more than you would have paid with the standard plan). You have to resubmit your income each year even if your details stayed the same. Spouse’s income counts if you file joint taxes.
• Length of repayment period: Your remaining balance is forgiven after 20 or 25 years of making payments, depending on the start date of your loans. 

Income-contingent repayment plan (ICR)

• Who it’s for: Any borrower with qualifying loans.
• How it works: You’ll pay the lower amount of either 20% of your discretionary income or the total you would owe on a fixed 12-year payment plan that has been modified for your income level. Your spouse’s income is counted if you file joint taxes.
• Length of repayment period: After you make payments for 25 years, your balance will be forgiven. 

Income-sensitive repayment plan

• Who it’s for: Any borrower with FFEL Program loans.
• How it works: Your monthly payment depends on your annual income.
• Length of repayment period: Your loans will be completely paid off after 15 years.

Before signing up for any repayment plan, make sure you know what you’re required to pay each month. Also, check the interest you’ll be charged over time. The standard plan is typically the option that will charge the least interest long term.

3. Pay close attention to your loans

You’ll want to be aware of several aspects of your student loans, including due dates, how much you owe, and the interest on each one — especially with the changes coming. Student loan repayments will restart in October 2023. Put the due date on your calendar to make sure you have enough cash on hand.

Also, try to pay off the student loan with the highest interest rate first. You can see the details, including the interest rate, of each loan after logging into your account on your loan servicer’s website. Direct any extra payments toward the loan with the highest rate until it’s paid off.

4. Make on-time payments

Missing several payments can affect your personal credit score. A lower credit score may impact your ability to get the business credit cards and small business loans you need to grow your business, so make sure you pay on time. 

This is true even if that payment is $0. You may still need to sign up for automatic payments with a $0 payment — make sure to follow your lender’s instructions.

5. Combine private loans

If you have more than one private student loan, consider consolidating them into one, also called refinancing. Doing this may make monthly repayment easier and make you less likely to forget a payment — especially if you’re paying multiple companies or lenders every month. 

However, try to make sure you aren’t swapping a fixed-rate loan (where the interest rate never changes) for a variable-rate loan (where the interest rate can increase). And make sure you won’t lose certain benefits or access to income-based repayment plans before you refinance.

How Nav can help your small business

Consider Nav your small business partner. Just like student loans don’t need to hold your business back, neither should a lack of funding. When you’re ready to make your next move, we’re here to guide you through the financing process. It’s quick and easy to use Nav today — just input your business details to see your best funding options instantly.